IS AMERICAN ECONOMIC GROWTH OVER? HEADWINDS

In August 2012 the noted American economist Robert J. Gordon
raised the deliberately provocative question “Is U.S. growth over?”
After much debate among economists, Gordon has updated his argument
in a recent paper, which this Series provides.

The first Post showed how growth SLOWED between the periods
1891-1972 and 1972-2007. This Post analyzes HEADWINDS facing
attempts to revive growth. The third Post will reiterate that those
Headwinds are likely to offset future technological INNOVATION.

All this should greatly interest Chinese. If future USA growth
remains slow, that will strongly affect the PRC. To some extent the
future of USA growth will also become the future of PRC growth,
eventually. Chinese may wish to do similar analysis of China’s own
growth.

______________________________________________________________

OVERVIEW

DEMOGRAPHY 1

EDUCATION 2

INEQUALITY 3

REPAYING DEBT 4

GLOBALIZATION 5

ENERGY/ENVIRONMENT 6

HEALTH INSURANCE 7

______________________________________________________________

130928

IS AMERICAN ECONOMIC GROWTH OVER? HEADWINDS

Robert J. Gordon

Northwestern University and National Bureau of Economic
Research

[This Post has been excerpted by Winckler from Robert J. Gordon
2013 “ ‘Is U.S. growth over?’ One year later. Reinterpretations,
criticisms, and reflections.” Prepared for 11th Annual Conference,
Center for Capitalism and Sociey, Dynamism and innovation in the
West: Has decline set in? Columbia University, New York City,
September 16, 2013. Here a few simplifications and explanations by
Winckler appear in brackets. Much of the OVERVIEW section has been
moved forward from later in the discussion of Headwinds in the
130916 paper. Non-technical readers can follow the main argument
through key statements that Winckler has bolded. More technical
readers may wish to attempt similar analysis of Chinese economic
growth. REFERENCES for all three Posts were attached to the first
Post in this Series. Gordon’s August 2012 paper was summarized in
this Blog in its first Post, 130105, Section 3.3.]

OVERVIEW

The initial [August 2012] paper emphasized the contrast between
IR #2 and IR #3 [the Second and Third Industrial Revolutions],
providing many arguments why the set of inventions that created a
new world between 1870 and 1970 could not be repeated. The role of
the headwinds in providing further reasons for a growth slowdown
was added at the end. This sequel reverses this ordering, since the
headwinds turn out to be more important than the pace of
innovation. This restatement reaches the conclusion that there is
no need to forecast any “faltering” of future innovation, as the
downshift to slower rates of innovation-driven productivity growth
already happened 40 years ago. The pace of innovation over the next
four decades must keep up with the last four to support the
forecasts contained here, however pessimistic they may seem

[This Post reviews the role of each of seven HEADWINDS in
retarding future economic growth, regardless of the future rate of
technological Innovation. The four main Headwinds – difficulties in
Demography, Education, Inequality, and Repaying Debt -- suffice to
reduce projected growth to less than half (from 2.0 to 0.8). Those
Headwinds are relatively easy to isolate and measure. At least
three more Headwinds involve difficulties in Globalization,
Energy/Environment, and Health Insurance. Those Headwinds are
harder to isolate and measure. Therefore – because they are not
essential for demonstrating that future growth may be slow – here
we provide only a brief qualitative discussion.]

[Figure 4 provides an overview of the main argument.] Starting
from the 2.0 percent annual growth rate of real per-capita GDP
between 1891 and 2007, [in round numbers] we [will subtract] 0.2
percentage points for demography, 0.3 for education, 0.5 for
inequality, and 0.2 for future fiscal corrections. This [will
bring] the total down to 0.8 percent [annual growth] even though no
mention has yet been made of innovation or productivity growth.
These four headwinds alone are sufficient to cut likely future U.
S. economic growth by more than half, again with the careful
qualification that this future projection refers to the disposable
income of the bottom 99 percent of the income distribution, not the
average per-capita income of the nation as a whole. [The slowdown
in Innovation since 1972 further reduces expected growth, from 0.8
to 0.2.]

We started with the green projected line growing at 2.0 percent
per year. This was sufficient to bring the level of real per-capita
output to $184,000 in 2077. Now, with the adjustment for the four
headwinds, the 2077 projection is a much lower $76,752.

[The blue and purple lines in Figure 4 take] the extrapolation
of the past 2.0 annual growth rate of output per capita over
1891-2007 and subtracts -0.22 for the more rapid future rate of
decline in hours per capita relative to the past, and the -0.27
decline in the contribution of education. These two headwinds alone
suffice to reduce the future growth rate of output per capita from
2.0 to 1.5 percent per year. We started with a 70-year projection
from 2007 to 2077 at a 2.0 percent rate, causing real GDP per
capita to quadruple to $184,000 by 2077. The downward adjustments
for the demographic and educational headwinds reduce the
prospective level of 2077 real GDP per capita to $125,283. [The
brown and black lines in Figure 4 further subtract 0.5 for
Inequality and 0.2 for Repaying Debt. Cumulatively that lowers
lowering our projection of 2077 real GDP per capita to $88,286 and
$76,752 and reduces the future growth rate of output per capita to
0.8 percent per year. Thus the black line is our pessimistic
projection, taking all four main headwinds into account. Again, the
slowing of innovation after 1972 further reduces expected growth to
0.2. We now discuss each of seven Headwinds in turn.]

DEMOGRAPHY 1

A standard assumption in every economic forecast is that the
retirement of the baby boomers will reduce hours per capita
independently of any other cause of a change in the
hours-per-person ratio. The denominator of the H/N ratio is the
population aged 16 or greater. Whenever a person retires, he or she
remains in the population (which goes from 16 up to the
longest-lived American) while making a transition from positive to
zero hours of market work. The baby-boom retirement phenomenon
matters because of the bulge in the population consisting of people
born between 1946 and 1964. The 1946 babies were eligible for early
Social Security status at age 62, that is in 2008, while the oldest
group born in 1964 will be eligible for full benefits at age 70 in
2034. That period, 2008-2034, represents a full quarter of a
century in which baby-boom retirement will drag down hours per
capita.

But that is not all. Even if the future [un]employment rate
returns to its 2004 value of 5.4 percent and the employment rate
returns to 94.6 percent, there will still be downward pressure on
the other two components of hours per capita, namely hours per
employee and the labor-force participation rate. The former has
been pushed down in part by America’s dysfunctional medical care
insurance policies, which tie medical insurance to employment
rather than providing it as a right of citizenship. Firms have
increasingly pushed employees into part-time status in order to
avoid paying medical insurance costs, and today roughly eight
million Americans are involuntarily working part-time while seeking
full-time employment. Because Obamacare has not shifted the basis
of coverage from employment to citizenship, this source of future
downward pressure on hours per employee will continue.

A unique feature of the slow 2009-2013 economic recovery has
been the fact that the employment rate has been steadily improving
while the participation rate has been declining, so that there has
been virtually no improvement in the employment-to-population ratio
(E/N ≡E/L*L/N). In fact, over the three years of recovery between
July 2010 and July 2013, the E/N ratio barely budged from 58.5 to
58.7 percent, compared to its prior peaks of 64.4 percent in 2000
and 63.0 percent in 2007. The decline in the labor-force
participation rate has prevented any recovery in the
employment-population ratio.

The decline in the participation rate involves more than just
baby-boom retirement. In late July, 2013, President Obama toured
several rust-belt cities which have lost most of their
manufacturing jobs base. Cities like Galesburg IL, Scranton PA, and
Syracuse NY are now mainly reliant on government, health-care, and
retail jobs. In Scranton 41.3 percent of those over 18 have
withdrawn from the work force, while in Syracuse that percentage is
an even higher 42.4 percent.

Compared to the actual growth rates in hours per capita of -0.55
percent during 1996-2004 and of -0.99 percent during 2004-2012, my
future forecast is for an annual rate of change of -0.42. This
includes the impact of baby-boom retirements and the underlying
demographic factors that have caused youth and prime-age males to
drop out of the labor force, and have induced firms to push workers
into part-time jobs. This assumed future rate of -0.42 is a decline
only slightly faster than the -0.29 rate realized during 1891-1948
when baby-boom retirement was not a factor. The implication of this
choice of the future annual rate of decline of hours per capita is
that output per capita will grow that amount, 0.42 percent per
year, slower than the rate of productivity growth.

After rounding for the education effect, future growth in output
per capita will be at a rate of 0.9 percent per year, and the 0.4
percent per year decline in hours per capita consists of a variety
of sources, including not just baby-boom retirement but also
declining participation among youth and prime-aged people.

EDUCATION 2

Since Denison’s (1962) first attempt, growth accounting has
recognized the role of increasing educational attainment as a
source of economic growth. Goldin and Katz (2008) estimate that
educational attainment increased by 0.8 years per decade over the
eight decades between 1890 and 1970. Over this period they also
estimate that the improvement in educational attainment contributed
0.35 percentage points per year to the growth of productivity and
output per capita.

The increase of educational attainment has two parts, that
referring to secondary education and the other relevant for higher
education. The surge in high-school graduation rates — from less
than 10 percent of youth in 1900 to 80 percent by 1970 — was a
central driver of 20th century economic growth. But the percentage
of 18-year-olds receiving bona fide high school diplomas has since
fallen, to 74 percent in 2000, according to James Heckman. He found
that the holders of GED’s performed no better economically than
high-school dropouts and that the drop in graduation rates could be
explained, in part, by the rising share of youth who are in prison
rather than in school.

The role of education in holding back future economic growth is
evident in the poor quality of educational outcomes at the
secondary level. A UNICEF report lists the U.S. 18th out of 24
countries in the percentage of secondary students that rank below a
fixed international standard in reading and math. The international
PISA tests in 2009, again referring to secondary education, rated
the U.S. as ranked 14th in reading, 25th in math, and 31st in
science. A recent evaluation by the ACT college entrance test
organization showed that only 25 percent of high school students
were prepared to attend college with adequate scores on reading,
math, and science.

At the college level longstanding problems of quality are joined
with the newer issues of affordability and student debt. In most of
the postwar period a low-cost college education was within reach of
a larger fraction of the population than in any other nation,
thanks to free college education made possible by the GI Bill, and
also minimal tuition for in-state students at state public
universities and junior colleges. After leading the world during
most of the last century in the percentage of youth completing
college, now the U. S. rank in its college completion rate has
descended to number 16. The percentage of 25-year-olds who have
earned a BA degree from a four-year college has inched up in the
past 15 years from 25 to 30 percent, but that is substantially
lower than in many other nations.

And the future does not look promising. The cost of a university
education has risen since 1972 at more than triple the overall rate
of inflation. Between 2001 and 2012 funding by states and
localities for higher education declined by fully one-third when
adjusted for inflation. In 1985 the state of Colorado provided 37
percent of the budget of the University of Colorado, but last year
provided only 9 percent. Presidents of Ivy League colleges and
other elite schools point to the lavish subsidies they provide as
tuition discounts for low- and middle-income students, but this
leaves behind the vast majority of American college students who
are not lucky or smart enough to attend elite institutions.

Even when account is taken of the discounts from full-tuition
made possible by scholarships and fellowships, the current level of
American college completion has been made possible only by a
dramatic rise in student borrowing. Americans owe $1 trillion in
college debt. While a four-year college degree still pays off in a
much higher income and lower risk of unemployment than for
high-school graduates, still about one-quarter of college graduates
will not obtain a college-level job in the first few years after
graduation. “Dear graduate, face your future as an indebted taxicab
driver or barista.”

Students taking on large amounts of student debt face two kinds
of risks. One is that they fall short of the average income
achieved by the typical college graduate, through some combination
of unemployment after college and an inability to find a job in the
chosen field of study. Research has shown that on average a college
student taking on $100,000 in student debt will still come out
ahead by age 34, with the higher income made possible by college
completion high enough to offset the debt repayment. But that
break-even age becomes older if future income falls short of the
average graduate. There is also completion risk. A student who
takes out half as much debt but drops out after two years never
breaks even because wages of college drop-outs are little better
than those of high-school graduates. These risks are particularly
relevant for high-achieving students from low-income families --
Stanford’s Caroline Hoxby has shown that they often do not apply to
elite colleges, which are prepared to fund them completely without
debt, so they wind up at sub-par colleges loaded with debt.

The poor achievement of American high school graduates spills
over to their performance in college education. Many of the less
capable enter two-year community colleges, which currently enroll
39 percent of American undergraduates, whereas the remaining 61
percent enroll in four-year colleges. The Center on International
Education Benchmarking reports that only 13 percent of students in
two-year colleges graduate in two years, although the percentage
rises to 28 percent after four years. The low graduation rates
combine the need for most students to work part-time or full-time
in addition to their college classes, and also the poor preparation
of the secondary graduates who enter community colleges. Most
community college students take one or more remedial courses.

To place the historic contribution of education to economic
growth in perspective, Goldin and Katz have calculated, during most
of the 20th century education’s contribution to economic growth was
around 0.35 percent per year. Estimates by Harvard’s Dale Jorgenson
suggest that education’s growth contribution will decline by 0.27
percent in the future as compared to the past. Jorgenson’s estimate
has become a consensus view, being adopted in the latest series of
sources-of-growth projections by Bryne, Oliner, and Sichel
(2013).

INEQUALITY 3

The inexorable rise in the inequality of the American income
distribution continues. The quantitative number used in last year’s
paper came from Emmanuel Saez’ web site. He reports that between
1993 and 2008, the average growth rate of real income was 1.30
percent per year but for the bottom 99 percent of the income
distribution was 0.75 percent per year, a difference of 0.55
percent per year. I rounded down that growth rate from 0.55 to 0.50
percent per year and used that as my subtraction quantity to
translate average growth in real GDP per capita to that of the
bottom 99 percent of the income distribution.

The Saez numbers have been updated to 2012, but it turns out to
make no difference. If we now compare real income growth for
everyone compared to the bottom 99% of the income distribution, the
1993-2012 growth rate is 0.87 for the average and 0.34 for the
bottom 99%, so that the difference is 0.53 percent, little
different than the 0.55 percent previously listed on the Saez web
site for 1993-2008.

Another indicator of the sharp divide between median and average
real income growth is provided in the Census series on median real
household income. Expressed in 2011 dollars real household income
in 2012 was $52,100, below the 1998 level of $53,700. For mean
household income to exhibit no growth over the past 14 years
provides evidence beyond the Saez tax-based data that real income
growth in middle America has already reached zero. For many
Americans my pessimistic predictions for the future have already
become fact.

Recently there has been substantial publicity for the plight of
fast-food workers, most of whom are paid little more than the
minimum wage. The bottom 20 percent of American workers classified
by income earn less than $9.89 per hour, and their
inflation-adjusted wage fell by five percent between 2006 and 2012,
while average pay for the median worker fell 3.4 percent. Holding
down wages is an explicit corporate strategy at retail firms like
Wal-Mart, which hires only temporary workers to fill job openings
and forces many of its workers onto part-time shifts. Similarly,
the Wall Street Journal writes that

Economic changes over the past decade have led to a decline
across the country in well-paying jobs, such as those in
manufacturing, and an increase in jobs that pay less, such as those
in hotels and food services . . . Positions are increasingly being
filled not with the young and inexperienced, but by older and more
skilled workers who can’t find other jobs.

The Caterpillar corporation has become the poster child of
rising inequality. It has broken strikes in order to enforce a
two-tier wage system in which new hires are paid half of existing
workers, even though both groups are members of the same labor
union. In contrast there was an 80 percent increase over the past
two years in the compensation of Caterpillar’s CEO, whose quoted
mantra is “we can never make too much profit.” Foreign companies
like Volkswagen continue to open plants in the non-union
right-to-work states which is helping to keep manufacturing
employment from declining further but is contingent on maintaining
worker wages at about half the level that the auto union had
achieved for its workers before the financial crisis.

Any optimist who thinks that the rise of inequality is about to
turn around is not paying attention to the deterioration of the
social and economic condition of the bottom one-third to one-half
of the income distribution, as family breakup and breakdown deprive
millions of children of the traditional support of a two-parent
household. Charles Murray’s Coming Apart carefully documents the
decline of every relevant social indicator for the bottom third of
the white population, which he calls “Fishtown” after a poor
district in Philadelphia. Murray admirably presents his data in a
series of charts from government data sources that extend from 1960
to 2010, and they apply only to the white population so are not
influenced by any shift in population shares among whites, Asians,
blacks, and Hispanics.

The Murray charts that I find most compelling as evidence of
widespread U. S. social breakdown are these. On the decline of
work, the percentage of married couples where either one or the
other spouse worked 40 or more hours in the previous week declined
from 84 percent in 1960 to 58 percent in 2010. The breakup of the
family is documented by three complementary indicators all
referring to the 30-49 age group: percent married down from 85 to
48 percent, percent never married up from 8 to 25 percent, and
percent divorced up from 5 to 33 percent.

But the most devastating statistic of all is that in Fishtown
for mothers aged 40, the percentage of children living with both
parents declined from 95 percent in 1960 to 34 percent in 2010.
Children living in a single parent family, usually with the mother
as the head of household, are more likely to suffer from poverty
and lack of motivation, and are more likely to drop out of high
school. The educational and inequality headwinds interact in a
multiplicative way and predict a future of continuing decline of
the U. S. ranking of high school dropouts and the rate of U. S.
college completion. .

In short, the inexorable rise in the inequality of the American
income distribution shows no signs of ending. Many of the new jobs
created during the recent economic recovery have been low-paying
jobs, often part-time. The push by employers to force employees
into part-time jobs is accentuated by the increasing burden of
medical insurance. Other countries avoid the destructive effect of
rising medical care costs on insurance premiums and indirectly on
job creation by making medical care coverage a right of citizenship
paid for by a value-added tax that no one can avoid.

At the top there is no limit on the ambition of corporate
executives for ever-higher individual compensation, complete with
lavish golden parachutes if their tenure at the top comes to an end
for any reason. In previous sections we have reduced the future
growth rate of per-capita income from the historic pre-2007 growth
rate of 2.0 per year to 1.5 percent as a result of the demographic
and education headwinds. The inexorable rise of inequality reduces
prospective future growth further by 0.5 percent, from 1.5 to 1.0
percent per year, for the bottom 99 percent of the income
distribution..

REPAYING DEBT 4

The future covered by these forecasts, whether over the next 25
or the next 70 years, includes the day of reckoning for the
indebtedness of government at the federal, state, and local levels.
While the Congressional Budget Office currently estimates that the
federal ratio of debt to GDP will stabilize between 2014 and 2020,
its optimism is based on highly unrealistic economic forecasts that
include a projected growth rate of actual real GDP of 3.4 percent
per year for five straight years between 2014 and 2018, on top of a
now-unlikely 2.8 percent growth rate for 2013. A more realistic and
lower economic growth forecast would replace the CBO’s sanguine
projections of a stable debt-GDP ratio with an upward-creeping
ratio.

But even the CBO projects that trouble lies ahead beyond 2020.
The Medicare trust fund is predicted to reach a zero balance in
2026, while the zero-balance date for Social Security has steadily
advanced (due to slow economic growth and larger disability claims)
from the projected 2047 date estimated six years ago to the latest
projected zero-balance date of 2033. When the pessimistic forecasts
of this paper for future real GDP growth are applied to those
Medicare and Social Security dates, then the zero-balance dates
advance forward closer to today. By definition any stabilization of
the federal debt-GDP ratio, compared to its likely steady increase
with current policies, will require more rapid growth in future
taxes and/or slower growth in transfer payments. This is the fourth
headwind, the near-inevitability that over the next several decades
the disposable income of the bottom 99 percent of the income
distribution will decline relative to the average real income
before transfers of the bottom 99 percent.

A sole focus on the federal debt ignores the unfunded pension
liabilities of many of America’s states and localities. The
bankruptcy of Detroit has led municipal bond experts to ask whether
Illinois and Chicago could be far behind, not to mention other
large states with massive unfunded pension liabilities. The
long-festering debate in the Illinois legislature about a pension
fix involves the percentage by which the growth rate of future
benefits will be reduced and what, if any, extra contributions
current and future state employees will be asked to make. The
projection that future growth in tax rates and/or slower growth of
government transfers will reduce the growth rate of disposable
income in the future by 0.2 percent is admittedly arbitrary but
reasonable number in face of the risks.

GLOBALIZATION 5

The 2012 working paper included two additional headwinds called
“globalization” and “energy/environment.” There is no need to
attempt to quantify their possible future influence, as the
headwinds discussed above are sufficient to validate the
pessimistic forecasts contained in the 2012 paper. [Our remaining
sections place] their contributions in perspective and add to the
list of headwinds.

Globalization is difficult to disentangle from other sources of
rising inequality. There has been an enormous loss of well-paying
manufacturing jobs that long antedates the 2008 financial crisis
and 2007-09 recession. Charles, Hurst, and Notowidigdo (2013) have
shown that roughly half of the seven million person loss of
manufacturing jobs between 2000 and 2011 occurred before 2008. The
time period 2000-07 witnessed the maximum impact of the increase in
Chinese manufacturing capacity that flooded the U.S. with imports,
boosted the trade deficit, and caused plant closings and ended the
chance of millions of workers to enjoy middle-income wages with no
better than a high-school diploma. According to their analysis, the
only reason that the economy experienced an economic expansion
rather than contraction in the years leading up to 2007 was the
housing bubble which allowed many of the displaced manufacturing
workers to obtain jobs in the construction industry which
disappeared after the bubble burst.

Globalization is also responsible for rising inequality through
another channel. The U.S. has benefitted from foreign investment,
particularly in the auto industry, but this has been directed
almost exclusively at the right-to-work states, largely in the
south, where foreign firms are free to pay workers whatever they
want. Wages of $15 to $20 per hour, compared to the old standard of
$30 to $40 per hour achieved before 2007 in union states like
Michigan and Ohio, are welcomed by residents of the southern states
as manna from heaven, and new plant openings are greeted by long
lines of hopeful workers at the hiring gates. Globalization is
working as in the classic economic theory of factor price
equalization, raising wages in developing countries and slowing
their growth in the advanced nations.

Since 1953 manufacturing employment has declined from almost 30
percent of U.S. employment to less than 10 percent. Some optimists
suggest that reduced wages in the southern states, together with a
rapid growth of wages in China, will bring jobs back to the U.S.
Even if this happens to some extent, the numbers do not point to a
major change from the dismal evolution of the manufacturing sector
over the past four decades. A revival in manufacturing employment
by a currently implausible rate of 20 percent over the next five
years would suffice to pull its employment share in the American
economy back only from 10 to 12 percent.

ENERGY/ENVIRONMENT 6

Another headwind discussed in the 2012 paper was
“energy/environment.” This set of complementary topics remains
highly controversial. Optimistic pundits point to vast new fields
of gas and oil made possible by fracking as fundamentally changing
the competitiveness of American industry by creating a cheap source
of energy that is not available to other countries outside the
North American continent.

The first distinction to make is between oil fracking and gas
fracking. The price of oil is set in world markets, and so
additional oil discoveries that may ultimately make the U. S.
oil-independent have no impact on the price of oil in the world and
in the U.S. That depends on the worldwide balance of oil demand and
supply. In early September, 2013, the price of West Texas crude oil
is $110 per barrel compared to $11 per dollar in February 1999. The
enormous and sustained increase in the price of crude oil over the
past decade, due in large part to the increased demand from China
and other emerging economies, hangs as a shadow over current and
future U. S. economic growth. Higher oil prices raise not just
gasoline prices at the pump and increase airline fares, draining
household disposable income, but increase manufacturing costs for
any product based on petroleum, including most types of
plastics.

Because gas cannot be easily transported between continents, the
gas fracking revolution in the U.S. is more of a boon. But this is
not a positive boost to productivity in the sense of the invention
of commercial aviation, air conditioning, or the interstate highway
system. Rather, the cheaper price of gas that is unique to the
North American continent will help offset the rising cost of oil
and will lead to a welcome substitution of gas not just for oil but
for coal, helping to reduce the growth of carbon emissions.

It is beyond the scope of this paper to discuss the large topic
of global warming and environmental policy. While the extent and
likely effects of global warming are highly conjectural, there is
little doubt that they are occurring and will create weather events
– whether coastal flooding or more frequent and violent tornadoes –
that will reduce future economic growth and raise insurance premia.
Future carbon taxes and direct regulatory inventions like the CAFÉ
fuel-economy standards will divert investment from true innovations
into research that has the sole purpose of improving energy
efficiency and fuel economy. Economic or regulatory pressures that
force households and firms with machinery or consumer appliances
that are operationally equivalent but more energy-efficient, at
substantial capital cost, are quantitatively and qualitatively
different than the early 20th century innovations that replaced the
ice-box by the electric refrigerator or replaced the horse by the
car.

MEDICAL INSURANCE 7

One last headwind was not discussed in the 2012 paper nor is it
pursued here. The unique American decision as a society to base
medical care insurance on the status of employment, instead of
making medical care protection a right of citizenship, reduces the
current and future efficiency of the American economy by as much as
six or seven percent of GDP. David Cutler and Dan Ly (2011) have
calculated that if the U.S. had the same ratio of medical care
expenses to GDP as does Canada, the level of U. S. medical care
expenditure would be lower by $1 trillion per year. A medical care
system on the Canadian model would not only save enormous resources
that could be devoted to other social purposes but would raise life
expectancy by allowing the entire population access to preventive
medical care.

Whatever the other flaws or virtues of Obamacare, it missed the
chance to cut the tie of medical insurance to employment. As a
result, the unlucky American who loses his or her job also loses
medical care insurance. The inefficiency created as doctors and
their staffs are forced to deal with endless variations of forms
and filing procedures created by multiple private insurance
companies steadily drags down American economic performance. And
the rising cost of health insurance steadily reduces the national
accounts measure of total wages and salaries excluding fringe
benefits (much of which is employer subsidies to health insurance)
relative to total employee compensation including fringe
benefits.

[The third and final Post in this series will discuss the
prospects for further technological Innovations and their likely
contributions to economic growth.]

__________________________________________________________________

GUEST BLOGGER

Economist Robert J. Gordon is one of the USA’s leading experts
on the current productivity of the American economy. He is writing
a book on the technological revolution that propelled American
economic growth between about 1891 and 1972. In August 2012 he
published a paper asking the deliberately provocative question “Is
U.S. Economic Growth Over?”

Gordon’s purpose was to alert American economists and
policy-makers to the possibility that, as they continued to attempt
to speed “recovery” from the 2007-2009 Great Recession, they could
not count on a return to the high rates of growth to which
Americans have become accustomed. His question has indeed provoked
much debate among American economists.

总访问量：博主简介

韦爱德Edwin A. Winckler (韦爱德) is an American political scientist (Harvard BA, MA, and PhD) who has taught mostly in the sociology departments at Columbia and Harvard. He has been researching China for a half century, publishing books about Taiwan’s political economy (Sharpe, 1988), China’s post-Mao reforms (Rienner, 1999), and China’s population policy (Stanford, 2005, with Susan Greenhalgh). Recently he has begun also explaining American politics to Chinese. So the purpose of this Blog is to call attention to the best American media commentary on current American politics and to relate that to the best recent American academic scholarship on American politics. Winckler’s long-term institutional base remains the Weatherhead East Asian Institute at Columbia University in New York City. However he and his research have now retreated to picturesque rural Central New York.